Federal Budget 2018-19: 'This Time It’s Personal'
The Federal Government and the nation’s fiscal position have become the beneficiaries of an unexpected windfall – primarily in the form of higher tax revenue due to the improved performance of the domestic and global economies (and the adoption of some conservative economic forecasts a year ago).
In the Budget, the Government has largely ‘banked’ this windfall in the early years – allowing for a 2018-19 deficit of $14.5b (or 0.8% of GDP) followed by a small $2.2b (or 0.1% of GDP) surplus in 2019-20. The return to surplus, therefore, comes one year earlier than previously projected. However, it’s in the year 2020-21 and beyond that the policy decisions taken in this Budget incur the greatest net cost, thereby crimping future surpluses.
In terms of new initiatives, the big ticket items are $24.5bn (or 1.3% of GDP) of new transport infrastructure spending as part of the existing 10 year program (although this is accounted for as an off-budget item) as well as initiatives in relation to aged care, the environment and health care.
For the economy, the Budget provides a little extra stimulus to underpin what we believe is an already improving trajectory. Accordingly, it adds to the conviction that the economy will reach (if not exceed) 3% real GDP growth during 2018-19. The ratings agencies should also be encouraged by the earlier return to surplus - further diminishing the (low) prospect of a ratings downgrade.